CBIC specifies Procedure to be followed in cases of manufacturing or other operations undertaken in bonded warehouses under section 65 of the Customs Act

Oct 19, 2018 | by Avantis RegTech Legal Research Team


The Central Board of Indirect Taxes and Customs (CBIC) on October 18, 2018 has specified the procedure to be followed in cases of manufacturing or other operations undertaken in bonded warehouses under Section 65 of the Customs Act.

Under Section 65 which provides for manufacturing as well as carrying out other operations in a bonded warehouse, the CBIC has prescribed “Manufacture and Other Operations in Warehouse Regulations, 1966” (MOOWR, 1966). These regulations provide for an application seeking permission under section 65, conditions of the bond to be executed by the licensee, maintenance of accounts, conduct of special audit and cancellation / suspension of permission etc. 

·         While Regulation (3) provides for the data elements to be obtained from the applicant seeking permission “to undertake any manufacturing process or other operations”, no form has been prescribed. For the sake of uniformity, ease of doing business and exercising due diligence in grant of permission under section 65, the form of application to be filed by an applicant before the jurisdictional Principal Commissioner / Commissioner of Customs is prescribed as in Annexure A.

·         Post the Finance Act, 2016 effecting amendments to Chapter IX of the Customs Act, 1962, the Warehouse (Custody and Handling of Goods) Regulations, 2016 were notified on 14th May 2016 and Circular No. 25/2016-Cus dated 8th June 2016 was issued, which collectively enjoins that licensees shall maintain accounts of receipt and removal in prescribed formats in digital form and furnish the same to the bond officer on monthly basis digitally. Therefore, a licensee carrying out manufacturing or other operations in a bonded warehouse under section 65 becomes obligated to maintain accounts as per Manufacture and Other Operations in Warehouse Regulations, 1966and at the same time also maintain records as private bonded warehouse. For the ease of doing business, it has been decided that a licensee operating under section 65, shall not be required to maintain two sets of records. Henceforth, the licensees manufacturing or carrying out other operations in a bonded warehouse shall be required to maintain records as per the form prescribed under this Circular (Annexure B), which combines data elements required under Manufacture and Other Operations in Warehouse Regulations, 1966and Warehouse (Custody and Handling of Goods) Regulations, 2016. Sub-section (2) of Section 59 of the Customs Act requires the owner of the warehoused goods to execute a triple duty bond for the warehoused goods.  Such bond shall be executed in the form prescribed under this Circular as per Annexure C.

·         To the extent that the resultant product manufactured or worked upon in a bonded warehouse is exported, the licensee shall have to file a shipping bill and follow the procedure prescribed under the Warehoused Goods (Removal) Regulations 2016 for transport of goods from the warehouse to the customs station of export. A GST invoice shall also be issued for such removal. In such a case, no duty is required to be paid in respect of the imported goods contained in the resultant product as per the provisions of section 69 of the Customs Act.

·         To the extent that the resultant product whether emerging out of manufacturing or other operations in the warehouse) is cleared for domestic consumption, such a transaction squarely falls within the ambit of “supply” under Section 7 which specifies scope of supply of the Central Goods and Service Tax Act,2017. It would therefore be taxable in terms of section 9 which specifies the provision for levy and collection of tax of the CGST Act, 2017 or section 5 which specifies the provisions for levy and collection of tax of the Integrated Goods and Services Tax Act, 2017 depending upon the supply being intra-state or inter-state. The resultant product will thus be supplied from the warehouse under the cover of GST invoice on the payment of appropriate GST and compensation cess, if any. As regards import duties payable on the imported goods contained in so much of the resultant products are concerned, same shall be paid at the time of supply of the resultant product from the warehouse for which the licensee shall have to file an ex-bond Bill of entry and such transactions shall be duly reflected in the accounts prescribed under Annexure B.

·         For waste or refuse arising out of manufacture and other operations in relation to the resultant products cleared for home consumption, import duty on the quantity of the warehoused goods contained in such waste or refuse shall be paid as per clause (b) to sub-section (2) of section 65.

·         For waste or refuse arising out of manufacture and other operations in relation to the resultant products cleared for export, where import duty on the waste or refuse is paid as per proviso to clause (a) to sub-section (2) of section 65, the same shall be deposited manually through a Challan. The records maintained as per Annexure-B would be sufficient for accounts of such goods.

·         It may be noted that units operating under section 65 read with section 58 of the Customs Act, are entitled to import capital goods, machinery, inputs etc. by following the provisions under Ch IX. In so far as domestic procurement is concerned, applicable rates of taxes shall be payable and exemptions, if any, can also be availed. By virtue of simply being a unit operating under section 65, they shall not be entitled to procure goods domestically, without payment of taxes. The records in respect of such domestically procured goods shall be indicated in the form for accounts (Annexure B).

·         Since the warehouse operating under section 65 also functions as a warehouse licensed under section 58, the licensees can import goods and clear them as such, under section 68 or section 69 of the Act, on payment of import duties, along with interest as per sub-section (2) of section 61 of the Act. The licensees shall also be required to maintain to submit monthly returns in “Form B” as prescribed under Circular No. 25/2016-Cus dated 8th June 2016 for such purposes.

[Circular No. 38/2018-Customs]

URL: http://www.cbic.gov.in/resources//htdocs-cbec/customs/cs-circulars/cs-circulars-2018/Circular-38-2018-Customs.pdf;jsessionid=37D54678FA622FE0BCED16E4CEC66A50


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